Total 84 Posts

4-Year Swap

If you read a lot of mortgage rate commentary, you'll see Canada's 5-year yield continuously cited as a fixed-rate indicator. It's a handy rough guide to the direction of 5-year fixed funding costs—most of the time. Practically speaking, insured 5-year fixed rates approach


"A" lending refers to prime mortgage lending; that is, lending to the most creditworthy borrowers. It differs from "B" lending, which refers to the non-prime mortgage market.


"Alt-A" stands for alternative 'A.' Alt-A mortgages are a classification of loans with more risk than prime ('A') mortgages but less risk than subprime ('B') mortgages. Canada's top alt-A lenders include the likes of Home Trust, Equitable Bank and First


An ARM is an Adjustable-Rate Mortgage. It's a floating-rate mortgage where the payment rises and falls with the lender's prime rate. With ARMs, the borrower's amortization remains constant as the prime rate goes up and down. An ARM is technically different from a variable-rate


The B-20 guideline, established by the Office of the Superintendent of Financial Institutions (OSFI), is a set of underwriting standards that federally regulated lenders are expected to follow. The aim is to protect financial system stability by making sure borrowers can handle their payments and lenders don't overextend


Able to be approved for a mortgage at a bank. This typically refers to a well-qualified prime customer.

Base Effects

"Base effects" refers to how economic values from a year ago affect the rate of change in economic data today. Take inflation, for example. If inflation was high in the same month a year ago, that high value would drop out of the calculation when inflation is recalculated


BDM = Business development manager. In the mortgage broker market, BDMs perform a vital sales role for lenders and suppliers. BDMs help brokers learn products, get assistance with underwriting and fulfillment, track performance and get rate exceptions, among many other things.


In the context of interest rates, as used here on, "bearish" refers to a downward influence. So if something is "bearish for rates" it means that it's likely to pressure rates lower, other things equal.


BFS stands for business for self (i.e., self-employed).

Breakeven Rate

Breakeven rates are used to estimate market expectations of inflation.  A breakeven rate is simply the difference in yield between inflation-protected bonds (i.e., U.S. Treasury TIPS) and regular government bonds of the same maturity. For example: If regular government bonds yield 5% and TIPS yield 3% for the

Bulk Insurance

Bulk insurance (a.k.a. portfolio insurance) is a specialized form of mortgage default insurance that lenders purchase for a portfolio of loans. Bulk insurance protects the lender from borrower defaults on a broader scale. It serves three primary purposes: 1. Risk reduction 2. Securitization (Liquid markets like the Canada


In the context of interest rates, as used here on, "bullish" refers to an upward influence. So if something is "bullish for rates" it means that it's likely to push rates higher, other things equal.


CDS is short for credit default swaps. CDS is a type of insurance that bond investors can buy to protect themselves against an entity (e.g., a bank) defaulting. MLN routinely refers to bank CDS spread data in our news stories. We typically get this data from S&P


CMB is short for Canada Mortgage Bond. The CMB market is a securitization method. It lets lenders sell pools of mortgages to investors. Lenders take the capital raised from CMB issuances and lend it out as new mortgages. They then package up those mortgages, sell them, and the cycle happens

Composition Effect

The composition effect is a statistical phenomenon that causes average home prices to be misleading. Take CREA's average Canadian home price for example. If there is a shift in the types of homes being sold (e.g., more high-priced single-family homes instead of low-priced condos), that is a

Contract Rate

The mortgage rate used to calculate a borrower's payments, as required by his/her mortgage contract.


What is CORRA? It's a question we get asked all the time, and it's not the easiest rate to explain. CORRA stands for "Canadian Overnight Repo Rate Average." It is a reference rate that's widely used in the Canadian overnight market. It


Correlation is a statistical measure that tells you how much two things move together. Correlation values range from -1 to +1. A correlation of +1 indicates a perfect positive relationship, meaning that every time one variable increases, the other increases proportionately. A correlation of -1 implies the reverse—a perfect

Covered Bond

A covered bond is a debt securities issued by a bank, secured by a pool of uninsured mortgages. The bank issuer remains liable for the bonds, providing an extra layer of security for investors, as they have recourse to both the cover pool and the issuer. Canadian covered bonds are


The Consumer Price Index (CPI) measures the cost of living. It tracks a weighted average of prices in a government-selected basket of consumer goods and services. Changes in the CPI are used to gauge inflation and such changes often affect mortgage rates, especially when CPI is trending.

Discretionary Rates

Discretionary rates are unpublished discounted rates that Big 6 banks offer to borrowers with at least 20% equity. The best discretionary rates are made available to top customers and those who negotiate. MLN estimates the median discretionary rates for the Big 6 banks in its Canadian Mortgage Rate Survey. The

Dot Plot

The dot plot, as it's colloquially known, shows where individual Federal Reserve officials predict interest rates going in the future. Formally known as the “Summary of Economic Projections” (SEP), the Fed releases the dot plot every quarter (March, June, September, and December). It is scrutinized by Wall Street


“Dovish” refers to a type of monetary policy that favours lower interest rates and more stimulus to boost economic growth and employment. If the Bank of Canada has a dovish stance, it means it wants to make borrowing easier for consumers and businesses, which can increase spending, demand, and production.


FICO is short for FICO score. A FICO score, named after the Fair Isaac Corporation, is a three-digit number ranging from 300 to 900 that lenders use to evaluate an individual's creditworthiness. It's calculated based on credit reports and reflects payment history, amounts owed, length of


The Federal Open Market Committee (FOMC) is part of the U.S. Federal Reserve (Fed). Its vital role is to determine the monetary policy of the United States, mainly through setting the federal funds rate, which is the interest rate at which depository institutions lend funds maintained at the Federal


FOMO is short for "fear of missing out." FOMO has been a hallmark of Canada's real estate market for years, with Canadians conditioned to think that home prices appreciate rapidly and don't stay down for long.


Forbearance is when a lender grants payment relief to a borrower in financial need. It typically entails the lender pausing or reducing one's mortgage payments for a limited time. The goal is to help the borrower get back on their feet so they can continue paying as agreed

Forward Curve

In the bond market, the forward curve is a graphical representation of where traders think interest rates will be in the future. The forward rate curve is useful because it helps traders anticipate future interest rate movements. If the curve is upward sloping, it suggests that the market expects interest

Forward Rates

Forward rates are the market's calculated expectation of a bond's yield in the future. In a sense, they're like a financial time machine, providing a glimpse into what the market expects interest rates to be at specific points in the future. Forward rates are

Four-Year Swap

If you read a lot of mortgage rate commentary, you'll see Canada's 5-year yield continuously cited as a fixed-rate indicator. It's a handy rough guide to the direction of 5-year fixed funding costs—most of the time. Practically speaking, insured 5-year fixed rates approach


FRFI is short for "federally-regulated financial institution." This includes banks, insurance companies, loan companies and federal trust companies regulated by OSFI.


The First-Time Home Buyer Incentive (FTHBI) is a CMHC program meant to lower mortgage payments, interest expense and default insurance costs for eligible first-time homebuyers. The program provides 5% or 10% of the home's purchase price to put towards a down payment, thus reducing the loan amount, interest


TDS stands for "gross debt service." A borrower's GDS ratio equals his/her monthly cost of carrying a mortgage divided by total gross monthly income. In other words, it's the percentage of income needed to cover basic housing costs. Prime lenders commonly underwrite mortgage


GFC is an acronym for Global Financial Crisis. The GFC lasted from 2007 to 2009 and was the worst financial crisis since the Great Depression. Here's a timeline of its major events...


Short for "Government of Canada." "GoCs" refers to Government of Canada bonds.


“Hawkish” refers to a type of monetary policy that favours higher interest rates and less stimulus to restrain economic growth and employment. If the Bank of Canada has a hawkish stance, it means it wants to make borrowing harder for consumers and businesses, which can decrease spending, demand, and production.


A high-ratio mortgage has a loan-to-value over 80%, typically requiring default insurance.


An insurable mortgage has at least 20% equity and meets other normal default insurance requirements, for example: * Purchase or transfer (no refinances) * 25-year maximum amortization * Maximum purchase price under $1 million * Maximum debt ratios of 39% #GDS# and 44% #TDS# Insurable mortgages are bulk insured by the lender and securitized.


Interpolation is the process of drawing an implied path between two known points. Interpolation is a common method used to create yield curves.


Interest Rate Differential (IRD) is a type of mortgage prepayment penalty. It's meant to compensate the lender for lost interest due to the borrower's early payment. It generally applies when the: (A) borrower pays off more of their closed fixed mortgage than the lender's


A low-ratio mortgage is one with 20% equity or more. In other words, 80% loan-to-value or less.


Loan-to-value (LTV) is a ratio that compares the amount of a mortgage loan to the value of the property. It is calculated by dividing the loan amount by the property's value or purchase price and multiplying by 100. For example, if you buy a home appraised at $200,


Macroprudential policy refers to the use of regulatory tools to limit systemic risk in the financial system. In Canada, the primary policy tools employed in this regard are related to the residential housing market. Examples include higher down payment requirements and stricter mortgage qualifying rules.


MBS stands for mortgage-backed security. It is a type of investment. An MBS is basically a pool of mortgages sold to investors. Investors receive ongoing funds from the payments people make on their mortgages. Investors get the rest of their principal back when the MBS matures.


A MIC, or mortgage investment corporation, is a lending company that takes investor funds and lends them out on mortgages. MICs mostly serve non-prime residential customers, but many finance commercial projects and also prime borrowers with a need for fast flexible financing. MICs are a fixed-income investment that provides investors


A monoline is a lender that deals only in mortgages. In other words, it's got one (mono) line of products. Monoline lenders are generally not deposit-taking and they don't have branches. They tend to originate loans mainly through mortgage brokers. Examples of monoline lenders include First

Negative Amortization

Negative amortization occurs when the interest on a mortgage exceeds the payment, causing the loan balance to grow.

Neutral Rate

The "neutral rate" is the theoretical monetary policy rate that keeps the economy operating at full capacity with no inflation pressure. In other words, it's the overnight rate that is considered to be neither stimulative nor restrictive for the economy. When the policy rate is neutral,


National Housing Act mortgage-backed securities. NHA MBS is a government-sponsored way for lenders to generate funding for default-insured mortgages. NHA MBS are investments backed by pools of insured mortgages. Investors purchase these securities, which in turn provides issuers (lenders) with capital to lend against new mortgages. Investors receive monthly payments


NIM stands for Net Interest Margin. In a mortgage context, NIM is a key financial metric used by banks to measure the difference between the interest income they earn from loans and the interest they pay to depositors, relative to their total interest-earning assets. NIM is expressed as a percentage


OIS stands for overnight index swap. An overnight index swap is a bond market derivative that financial traders use for hedging and to speculate on the direction of central bank policy rates. In Canada, OIS rates equal the expected Bank of Canada overnight rate over a specific timeframe. For example,


OTBE means "Other things being equal," or ceteris paribus if you're into latin. It's a phrase used to simplify economic analysis by isolating the effect that one variable has on another, assuming all other conditions remain the same. Usage example: "Higher inflation results


PCE stands for "personal consumption expenditures." PCE is an inflation gauge which tracks expenditures on goods and services in the U.S. Core PCE is the primary inflation measure used by the Federal Reserve to guide its monetary policy.


POS stands for point of sale. In the context of the mortgage industry, a POS system is a software application that facilitates the mortgage application process. Mortgage originators use POS systems to submit application data to a lender for underwriting. The biggest POS systems in Canada include: * Filogix Expert * Newton

Prime Mortgage

“Prime mortgages” are those offered to borrowers who meet standard criteria for creditworthiness and ability to repay. These criteria typically include a good credit score (e.g., 680 to 720 or more), stable employment, provable income and a reasonable debt-to-income ratio (usually a #GDS#/#TDS# ratio under 39/44).


QE is short for quantitative easing. Quantitative easing is a monetary policy where central banks increase their holdings of government bonds and other financial assets (i.e., purchase them in the market) in order to increase the money supply and stimulate inflation. This process is the reverse of "quantitative


QT is short for quantitative tightening. Quantitative tightening is a monetary policy where central banks reduce (sell) their holdings of government bonds and other financial assets to decrease the money supply and control inflation. This process is the reverse of "quantitative easing," where central banks purchase assets to

Qualifying Rate

The minimum interest rate that lenders must use to calculate a borrower's maximum affordable mortgage payment when qualifying for a mortgage. The government sets Canada's minimum qualifying rate for federally regulated lenders. It is equal to the greater of 5.25% or the contract rate plus


R-star, or r*, is the real neutral rate of interest that keeps the economy steady over the long run when we're at full employment with stable inflation. By steady, we mean neither expanding nor contracting. R-star is a theoretical number that can't be known in real-time,

Rate Simulation

MLN runs rate simulations weekly to assess which terms project to have the lowest hypothetical cost of borrowing given: * The leading nationally advertised rates * The market's current forward rate expectations * Historical rate spreads (used with forward rates to project renewal rates) * An estimated $300 in switching costs at


When a mortgage is readvanceable, it means you can reborrow the principal that you pay. A readvanceable mortgage has two or more portions: 1. A regular mortgage 2. A revolving line of credit (LOC) The LOC limit increases each time you make a principal payment on the mortgage. The readvanceable

Real Interest Rates

Real interest rates are nominal rates minus inflation. For example, if the real Bank of Canada policy rate is 5.00% and the year-ahead outlook for inflation is 2.5%, the real policy rate is 2.5%. Real rates are crucial in economic policymaking and analysis because they: * measure the

Regression Line

A regression line, also called a "line of best fit," is a straight line drawn through a bunch of data points. The goal when drawing the line is to stay as close to each data point as possible. Once this line is drawn, you can use it to:

Rental Offset

Rental offset refers to the portion of rental income a lender permits a borrower to subtract from their housing costs. The bigger the percentage, the easier it is to qualify for a mortgage. Rental offsets are usually 50-80%, but a small number of lenders allow up to 100% on uninsured


RESL stands for real estate secured lending. It's basically any financing secured by residential properties, including mortgages and home equity lines of credit (HELOCs).


A spread is the difference between two rates. For example, the spread between a competitive 5-year fixed and the 5-year government bond yield has averaged 150 bps long term. When it's much more than that, it implies that 5-year fixed rates will fall, and vice versa. The term

Stress Test

A procedure used by lenders to determine if a borrower can afford their mortgage payments under adverse circumstances, such as soaring interest rates or loss of income. As of June 2021, borrowers at federally regulated lenders must prove they can afford a payment based on a rate that is the

Structural Inflation

Structural inflation is inflation that's resistant to monetary policy and economic conditions. It results from fundamental shifts in an economy's supply and demand dynamics. Examples of its causes might include: * Long-run labour shortages * Bad long-term policymaking * Regulatory changes Structural inflation typically requires structural changes to mitigate


TDS stands for "total debt service." A borrower's TDS ratio equals his/her total monthly obligations divided by total gross monthly income. In other words, it's the percentage of income needed to cover all debt payments. Prime lenders commonly underwrite mortgage applications by assessing

Terminal Rate

The terminal rate is the peak policy rate in a given rate hike cycle. The terminal rate is reached when a central bank stops tightening monetary policy—i.e., when it becomes clear that inflation is under control and expected to fall back to target.

Transactional Insurance

Transactional insurance is default insurance that borrowers typically pay for themselves. This is usually done when they are purchasing a home with less than 20% equity, but not always. Transactional insurance differs from "portfolio" (a.k.a., "bulk") insurance, which lenders pay for to manage risk

Trigger Rate

A trigger rate is the interest rate at which your regular mortgage payment no longer covers the interest due. This applies to borrowers who have variable-rate mortgages with fixed payments. When the Bank of Canada raises interest rates significantly (e.g., 275+ basis points), many borrowers will see their variable


VRM is short for variable-rate mortgage. It's a floating-rate mortgage where the payment remains fixed, despite increases and decreases in the lender's prime rate. With VRMs, the borrower's amortization extends as rates increase and shrinks as rates decline. In 2023, some VRM borrowers saw

What is the Smith Manoeuvre?

The Smith Manoeuvre is a personal finance strategy with three goals: 1. Convert mortgage debt into tax-deductible debt 2. Build a more significant retirement portfolio 3. Use tax refunds to pay down the mortgage quicker. How does the Smith Manoeuvre work? Here are the basic steps: 1. Get a readvanceable


Y/Y stands for "year-over-year." It's a comparison used to evaluate the rate of change in statistics, interest rates or other financial performance measures. If you have a CPI value of 200, for example, and one year later the CPI is 210, that is a 5%

Yield Curve Inversion

Yield inversion typically refers to a case where long-term government bond yields are below short-term government bond yields. Usually, the opposite is true, as yield curves are generally upward-sloping. That's because investors demand more compensation (higher rates) for the extra risk of lending their money for longer terms.
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